Reasoning Toyota’s recall crisis

By | March 25, 2013

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Reasoning Toyota’s recall crisis

(a)   How is it possible that a company with a strong quality focus have so many quality issues in such a short amount of time?

Case review and the direct reasons

As summarized in the appendix 1 during the 2009 to 2011 series recall, the first recall happened in the late 2009, 2nd November 2009 to be exact, when 3.8 million Toyota and Lexus vehicles sold in the U.S in the United States market alone were recalled due to floor mat (for all driver’s side mats) problem (Toyota.com 2009). Not long after the first recall, the second recall which was made on 21st January 2010 after some car accidents involved another defect which is different from the previous floor mat problem, the Sticking Accelerator Pedal (Ramsey 2010). The Sticking Accelerator Pedal is reported to be the main reason for issue of sudden unintended acceleration in the Toyota vehicles in the said crashes (Kirchhoff 2010). As the real timeline of the recall in the appendix tells, the large following recalls are mostly due to these two direct reasons or defect of the Toyota vehicles: Sticking Accelerator Pedal & Floor Mat Problem. With a careful examination on the recall history, we can find out that actually the recall due to floor mat defect actually happened as early as in the end of 2007 according to the given recall timeline in the appendix. With reference to the case, this indicates that Toyota already had identified these problems long before the 2009 to 2011 series recall. With the analysis given and also pointed out by many analysis reports, there are deeper reasons under the series recall or recall crisis.

Fundamental reasons

According to Olson (2010, p.36), at the root of Toyota’s current situation lie governance failure and internal distrust that hampers decision making. Though this point of view is rather abstract and general but it gives us the way of apprehending the root cause of the crashes which is to look at the truth beyond the gas pedals or floor mat.

Faulty human resource process

In analyzing the root causes of the Toyota recall crisis, comparing analysis was made by Dr. John Sullivan (2010) that using the accident of the Titanic that is known to us as an incident, the damage made by the hull colliding with the iceberg eventually sank the large ship, but the collision was the result of a series of poor decisions to travel too fast given the bad weather conditions as the owners rewards for speed rather than safety which had never been a problem to the owners. When hull design flaw contributed to disaster, the root cause of the problem was human error. What Dr. John Sullivan suggested here is that in term of business management, when human errors happen these errors are usually the results of a faulty human resource process which deals with the human resource acquiring, developing, motivating and management of exit. That is why Dr. John Sullivan concluded that if it is not the human resource process in Toyota to reward sale growth and a fast (as fast as possible) growth, these human errors could be prevented.

Some even more specific events and facts in Toyota prove this view is plausible. In the past one 10 years, the US market share of Toyota increase in dramatically and according Toyota had hired more people, and when the number of employees raised quickly relatively there’s fewer leaders to pass along their commitment to continuous improvement to the new workers which is a disciplined commitment to continuous improvement and high quality (Reliableplant.com 2010). Also, it is said by some old employees that new employees are trained at a fast pace to keep up with expansion. To make a conclusion, the human resource processes should be reviewed to see whether there are defects in term of whether the safety, quality and performance in employees’ job treated as important targets rather than focusing on the gas pedals.

Focus on growth by the management

Toyota is famous for its product quality and car safety which is the very foundation of the company’s international competitiveness. Because the gas pedal component in question is supplied by a U.S. maker. Some studies come to the conclusion that the reason for the quality problems is in the failed supplied supplier management because Toyota failed to ensure the supplier’s products were free from design flaws and quality problems (Asahi.com 2010). But look back on Toyota’s long history ever since the mid-1960s, Toyota began to shift more process steps to suppliers to keep up with the rapid expansion of auto industry (Yang 1995, p85). This time, what Toyota had done appeared to be adhering to and copying what they used to do. But as suggested by Ananth Iyer,Sridhar Seshadri and Roy Vasher (2009, p87), the supplier performance is closely correlated with the desires expressed by the OEMs. And based on the past study, suppliers for Toyota, Nissan and Honda have been observed to be providing greater improvements in the product quality year after year than have other OEMs and this reflects that these companies are putting more priorities on quality versus cost. This suggests that when the preference of Toyota will affects the supplier performance to deliver innovation, cost and quality. When the American gas pedal component supplier produced defect gas pedals, it reflects Toyota’s more focus on cost saving rather quality on the supplier. So the fundamental cause of the many quality issues is the management’s focus on growth at the cost of product quality and safety which had been top priority in the history of Toyota.

(b) What are some cultural changes that Toyota should make to repair its tarnished image?

Corporate culture refers to the ideals, values and meaning proposed and/or embraced by senior managers and possibly other groups responsive to their messages (Alvesson 2002, p15). In another definition by Toyohiro Kōno and Stewart Clegg (1998, p106), corporate culture is a dynamic concept characterizing a company’s attitude towards phenomena. The management’s focus on the cost saving the market share growth reflected in the selection and requirement of suppliers demonstrates that the corporate culture in term of the management’s attitude to the product safety, customer goodwill and other core values could have some problems. Below are some cultural changes that Toyota could make to rectify some problems in the corporate culture among the management and employees.

Increase the trust to the non-Japanese leaders

In the series of product quality issues, remote decision making and slow reactions have been widely criticized as reasons why the recall crisis would happen and would get involved with so much media criticism with great impacts on the company image. And the distrust in the top management to the non-Japanese leaders is treated as the root reason in the corporate culture that hampers the decision making. According to the news, all recall decisions were made from Toyota’s Customer Quality Engineering Division in Japan, meaning no cars could be pulled off the roads in America, or anywhere else for that matter, without first getting the OK from Toyota headquarter thousands of miles away (Busmanagement.com 2010). This centralized decision making is actually a confirmation suggesting that the non-Japanese leaders are not trusted to make decision with high significance. Here are some tips to build and increase the trust to the non-Japanese leaders.

Firstly, Toyota could increase the non-Japanese senior executives in the top management in the head quarter to represent the voice of the non-Japanese leaders. One important factor that I believe leads to the distrust to the non-Japanese leaders is that they do even have the equal positions which give them legitimate power to voice out their claims compared to the Japanese leaders. The most obvious phenomenon is that after so many years operation in the oversea markets, now Toyota still has a Japanese chief executive manager to be in charge of a single oversea market (Peng 2009). Introducing non-Japanese leaders into the core global management teams will not only introduce fresh blood with different cultural perspectives into the top management level for better decision making but it also contributes to better communications with the trust to the Japanese leaders.

Secondly, Toyota should increase the transparency of the Toyota way and corporate culture. Building trust is building up a bilateral relationship between two different individual or groups, in case of Toyota, it not only needs to make the non-Japanese leaders acceptable to the Japanese leaders but it also needs to make the Japanese leaders acceptable to non-Japanese leaders. Here one barriers for the non-Japanese leader to get into the Toyota corporate cultural and become a member of the core management team is the mystery of the Toyota corporate culture that is marked with traditional Japanese features and is learnt in most time through social network. For Toyota to embrace more non-Japanese leaders in the core top management team, it should invest more effort to codify and explicitly express the Toyota way and corporate culture for the reference of the non-Japanese leaders to quickly understand the tradition, ritual and other cultural features of Toyota.

Thirdly, Toyota management should have unquestionable integrity. Integrity is important to building relationships. And it is the foundation upon which many other qualities for success are built, such as respect, dignity, and trust (Maxwell 2003). But the integrity and business ethics of the top management of Toyota had been questioned. There had been sayings suggesting that the top management of Toyota had long been aware of the defect of the unintended acceleration for years but finally decided not to recall the vehicles because of the great cost that will incur (Bredeson 2011, p54). When the Top management does not have unquestionable integrity and highest business ethics, it seems it is too much to ask for trust among the Japanese leaders and non-Japanese leaders. What is more, the lack of the business integrity is the root cause of the recall crisis. It is important for the company to promote highest business ethics and put the product quality and safety at the top priorities when making critical decisions.

Enhance the communications

As analyzed by Jeffrey, Liker and Franz (2011, p2) that in the case of Toyota recall crisis, every part of the organization such as sales, engineering, manufacturing, communications, government affairs and quality down to the level of the working stiff, has to work actively at countermeasures to safety recalls and the resultant damage to the company’s image. During this recall crisis, the Toyota’s corporate culture in which the managers and staffs tends to do more and at the same time speak much less gave much room for distortion in new reports. To enhance the role of communication in Toyota’s business culture, there are two techniques to be used to perform such a change in the corporate culture.

Firstly, a clear sense of vision of inclusiveness should be communicated throughout Toyota. As described by Mary J. Davis (2003, p9) that one reason organizations have difficulties adjusting to rapid changes is that the majority of the people working there feel that they are relatively powerless. By communicating a vision of inclusiveness, for example every employees is encouraged and empowered to report any quality issues directly to the highest management, this inclusiveness communication will let the employees feel that even the lower level staffs could initiate actions without feeling vulnerable to the whims of managers who may dislike the actions.

Secondly, communication should be done within limited time. Despite the fact that Toyota may need to investigate the case in term of data collection and communication with the suppliers due to it is the problems with the components provided by the suppliers, Toyota’s unusual initial slow response compounded the quality issues to a key crisis finally (Sodhi 2010, p198). This slow response is actually a Japanese cultural tradition which could also be found in other Asian countries such as China. As we know Asian countries are commonly have cultural systems constructed based on complicated and complex social network which they treasured. To understand this simply, it is actually a good relationship between two very friendly parties. For example, Company A has partnership with Company B. When Company need to supply B with some good, there happens a fire occurs in the factory of Company A, and Company B knows this fact, in the coming days Company A may focuses on put out the fire and tries to get some others goods produced for Company B and Company would put any pressure to Company A because they are long term partners. And during this period of initial time, there could be very little communication made. But both parties seem to know what will be going on and with no chaos happened. This is known as cultural deference. But this is not really working in the United States market in which the American culture requires an open communication with time bound and in other words to be responsible. It could be considered as that there is a lack of trust between the people and companies (even partners) because they could not wait for their trusted friends and partners to deal with the accidents and in contrast request them to respond frequently and timely. But anyhow, as Toyota is selling cars in the United States market, it should do the business as the American do. To get adapted to this communication culture, Toyota should keeps the media, customers and employees aware of what happen and how their investigations going and tries to manage their expectation regularly.

(b)  Prepare a proposal for strategic vision(s) for 2012 to 2015 outlining strategic measures that would potentially put Toyota back into the race to be No.1 automaker n the world.

Toyota Strategic Visions for 2012 to 2015

Introduction

Thank you for having some time to be with us here today for a new Toyota Strategic Vision for the term starting at the beginning of calendar year 2012 and ends at the end of 2015. In April 2002, we announced the Toyota 2010 “Global Vision”, at that time our respected competitor GM held a global market share of 15 percent and we also set the target market share in 15% in 2010 from the 11 percent at that time by calling for internal reform of engineering and product development, management systems, and profit structures (Hino 2006). Looking back on the last Global Vision, we have to say that we win the market share competition but the commitment to rapid global expansion brought some confusion in our business leading to a series of quality issues shown in the recent recalls. Today we have a new global vision to lead us through the confusions. We have assembled a team of members from different regions of the world to formulate this vision.

Strategic visions for 2012 to 2015

This is the drafted Toyota Global Strategic Vision for 2012 to 2015 (this vision has not been finalized, further amendments could be made, and any suggestions please contact our team member directly):

Toyota aspires to be a the world’s No.1 automaker according to an integrated standard that prioritizes “Quality” at the first place, “Customer content” at the second place and “Market share and Profit making” at the third place.

Toyota will adhere to the highest standards of ethical behavior and regulatory compliance and we will also recommend our partners in particularly our suppliers to adopt these standards.

Toyota is dedicated to building group cohesiveness globally by enhancing strong trust and communication in our corporate culture by promoting empowerment, integrating cultural differences and inclusiveness in the workplace.

Strategic measures on the way back to world No.1 automaker

3.1  Building a Global Crisis Management Team

When we are not looking forward to facing a situation of crisis that will cause us like the recent recall crisis does to our business in term of high cost of recall and disruption of business and we also try to prevent any future crisis by emphasizing again on product quality and proactive communication to the stakeholders, the recall crisis reflects that there is room for improvement in crisis management in the future. For this consideration and also to enhance our management competency as a industrial leader in the auto manufacturing sector, we make up our mind to a Global Crisis Management Team.

The crisis management team (CMT) is the team responsible for making the high-level decision; for coordinating efforts of internal and external staff, vendors and contractors and for the determining the most appropriate responses to emergent situations as they occur (Snedaker 2007, p343). The Global Crisis Management Team will deal with the crisis and emergencies according to the procedures that define the on-scene response team member position-specific responsibilities, operational duties, and recommended equipment and supplies as well as reporting relationships across the entire incident command structure.

In term of the member configuration, the Global Crisis Management Team will be made up of two groups of members. The first groups are members in the standing committee that could be senior managers and executives from the various functional departments such as marketing, product development and human resource. The second groups of members will be temporarily made up by the managers, executives, staffs, technicians and other professionals who are needed to manage the crisis and emergencies.

In term of location of the Global Crisis Management Team, when there is no crisis, these members in the standing committee will be scattered in different regional markets to monitor the sign of crisis while at the same time perform their routine jobs. When the crisis situations happen, the Global Crisis Management Team will be gathered to form the special crisis management team based on the particular situation and the location of the team will be placed in the regional market in which the crisis happen and on-scene staffs even in low levels could be added into the special crisis management team for better evaluation the crisis or emergencies.

In term of the reporting system, the Global Crisis Management Team should be under the leadership of the regional general manager or regional CEO and supplemented by other team members, outside the Global Crisis Management Team, this team will be directly reports to the headquarter in Japan with decisions made representing the final decisions from the company. And headquarter in Japan should provide support of any mean to the operation and management needs of the team.

The design of the Global Crisis Management Team is based on two principles: the first principle is to prepare the crisis management team members globally but locate them in the closest market to reduce the data and fact collection time; the second principles is to empower the Global Crisis Management Team to make decisions on behalf of the company to reduce the response time.

3.2  Implement new code of ethics

The code of conduct together with Toyota way is seemed as two supporting mindset and principles that guild the Toyota business process. We believe high ethical standards are essential to achievement of our individual and organizational goals and also help control the future product quality issues caused crisis. For this reason, we determine to implement a new high ethical standard with the following steps proposed by Col Riaan Louw (Dcc.mil.za 2009). The whole process of redesign of the code of ethics will be implemented in the following six months.

3.2.1        Confirm the development phase of the code

In the first step of the whole process, the development phase of the code of ethics, we will focus on control on source code control and consistence control which are critical in this stage in implementing any codes (Schumann 2008). To keep the control over the source code, we will confirm the awareness of the need for the code throughout the organization early in the process and ensure that as many people as possible, including employees, are involved in the development of the code (Dcc.mil.za 2009). What is more, we will also focus on the consistence control to make our new code of ethics in consistence meets the anticipation of our stakeholders and also the code of ethics will be in consistence with our existing and new proposed corporate cultural changes, mission statement and other norms of the organization. This checklist regarding the consistency of the code should be adhered to in this first stage.

3.2.2        Institutionalize and internalize the code

To the make the new code of ethics workable and practical, we will need to institutionalize and internalize the ethical behaviors to make it integral part of the value system, cultural, management styles and other norms of the organizations. To achieve this, in this stage we will establish our new global vision and some culture changes which had been mentioned above such as the trust building to the non-Japanese leaders and enhance the communications to the stakeholders. Only when the code of ethics becomes part of what we believed, the code is made a living document rather than a paper.

3.2.3        Prepare the structure for the presentation of the code

We will prepare the structure for the presentation of the code according to the categories of the stakeholders to make sure that every group of the stakeholders are related and concerned in the code of ethics. The first group of stakeholders to be presented in our new code of ethics will be our customers to prioritize the interests of them in our business behaviors and remind our employees and suppliers that the customer’s interest and safety is overwhelming and when we address their concern, they will help us to address ours.

3.2.4        Plan the launch of the code

Our timing of the launch of the code of ethics will be chosen to be at the same time with the annual report to increase the exposure to the stakeholders such as the investors and also media. Also some changes should be prepared to take into effect together with the release of the code of ethics to show our determination to make a permanent impact.

3.2.5        Communicate the code

Each of the dimensions of a code, namely the aim, process, form, content and tone thereof, has important implications for the communicability and success of the communication of the code (Dcc.mil.za 2009). Beside the widely involvement of the employees and management in the drafting of the code, after it has been determined and finalized we will focus on communicating the code to the internal stakeholders such as our employees. We will provide with them coaching and meetings for them to have some time dedicated to the learning and understanding of our new code of ethics. In term of the tools to be used to spread and promote our new code of ethics, internal magazine, broachers for our new employees and e-mail and any other possible media could be utilized to increase the communication of the code of ethics.

3.2.6        Enforce the code

Our focus during the implementation of the code of ethics will be to develop a process that evaluates the behaviors of our staffs and decisions made by our management. The evaluation process should distinguish what behaviors are promoted and allowed and what decisions could lead to inconsistency to the code of ethics. In order to tell the members our high standard of the code of ethics, we will use reward and punishment to exhibit our attitude toward certain behaviors. Beside the reward or punishment that we can make to enforce the implementation and adherence of the code of ethics, we will also establish a code of ethics committee and nominate a position named as code of ethics facilitator to be in charge of the implementation of the code, providing assistance and recommendations when employees encounter difficulties in practical adherence to the code.

3.2.7        Reinforce the message

Reinforcement effort is critical to make sure that the promotional campaign and changes could be sustained. The code of ethics committee will be in charge of the daily monitoring, but it is not possible for the committee to monitor all the business activities. To make the monitoring job more efficient, we will encourage the whistle blowing behaviors for anyone to report any irregularities to the code of ethics. To protect the whistle blowers’ safety and secrecy we offer a unanimous email for any to report all the unethical behaviors. This would be anticipated to reinforce the message sent by the new code ethics.

3.3  Product strategy from 2012 to 2015

3.3.1        Differentiated vehicle models

Currently we are the global hybrid vehicle manufacturer, but our knowledge and product design experience in the “greener” vehicle model, the pure electric vehicles is behind other competitors. Based on the survey result and estimation of the future consumer preferences, we decide to make the following changes in our product strategy: In term of the hybrid vehicles, we had decided to continue to increase the coverage of the plug-in hybrid vehicles but cut a half of the previously planned new launch of about 10 new hybrid models by 2012 to only 5 new hybrid models. The planned cut of the new hybrid model in the next three years will prepare us to shift to the focus on the research & development of the pure electric vehicles and we are aiming at launch 4 new all electric vehicle car models. This shift of development focus of new models demonstrates that Toyota position to be ready with whatever technology captures the imagination of the car-buying public.

3.3.2        Localized strategy

The past one decade effort of Toyota could be treated as striving for a fast globalization and now we are dedicated to change to a more localized strategy based on the result of our globalization strategy. In terms of product development, design and improving perceived quality, we will set up structures that will allow local operations to play leading roles in the making of our vehicles. For example, with the fast expanding and increasing importance of the Chinese market (similar cases could be found in other major emerging economies), we have established a product development center in mainland China to provide onsite support to our localized manufacturing and service operations regarding the safety, environmental and other automotive functions (Toyota.com 2011). In the next three years, we plan to establish one more development center to enable the Toyota China to develop new localized products by investing more in the local human resource to support the greater localization.

3.3.3        Brand positioning for Lexus

Figure 1 The current positioning of Lexus compared to Mercedes and BMW auto

Source: Eckstein.id.au 2010

In the future, we will continue to position Lexus as a global premium brand intended for sophisticated drivers intimately familiar with the high-performance luxury cars. In the five identified dimensions in the brand analysis, we will keep our high Quality and high Reputation leadership while in the next three years we will increase its brand performance in the dimension of Exclusivity by adding emotional driving, leading-edge design, a full hybrid lineup and advanced technologies together will a sense of Japanese hospitality into the vehicles under the brand. And we will increase the marketing investment on the brand in the near future to promote it as the luxury cars around the world and the marketing job will be done by an independent global Lexus marketing team to demonstrate its uniqueness.

3.4  Supplier management

To make sure that an integrated standard that prioritizes “Quality” at the first place, “Customer content” at the second place and “Market share and Profit making” at the third place and also the highest standards of ethical behavior and regulatory compliance in term of our new proposed code of ethics are adhered in our large global business system, one important strategy will be to integrate our partners especially our suppliers into the new ethical standards and total product safety management system. Below are some strategies to ensure such adherence.

3.4.1        Supplier numbers

As we are increasingly dependent on the suppliers outside of Japan which had downplayed the fundamentals of collaboration during our rapid expansion that started in 2002, and our sole-sourcing approach did make the crisis more serious than we can sustain, after the rethinking about our strategy we have made up our mind to expand the number of suppliers numbers in the oversea markets to disperse the risks for better risk management. But this would not compromise our quality demand on the components supplied by these partners as relationships with tier-two or tier-three suppliers can also be extremely critical to the business success of Toyota (Boyer & Verma 2010). And in the long run, the optimal number of suppliers would be determined by the marginal cost of adding additional suppliers, rather than the initial cost of establishing or joining a partnership.

3.4.2        Supplier selection criteria

3.4.2.1  Long-term relationships

As Toyota is using a lean production system, we need to develop long term relationships with our suppliers to ensure an uninterrupted supply of raw materials and components (Boyer & Verma 2010, p462). To establish a long term relationship, it means that low price would not be the only thing that we want from the suppliers, but rather we will be sharing profit, value and way of managing business in a long run to benefit both side through long term relatively stable partnership. And we believe that driving the suppliers too hard for cost reduction and control would not sustain a long term relationship because when the suppliers are focusing too much on cost control, quality of the components could be treated as a second priority and also as their profit reduces they would have less profit for reinvestment and technological updates which is necessary in the long run.

3.4.2.2  Meet the high ethical standards

When we select a long term supplier, we will need to evaluate the supplier not only in traditional measurements such as distance from the manufacturing center, price competitiveness and product quality level and so on but we will also require our partners to meet our high ethical standards which will be renewed to a stricter standard as mentioned. To target that we request our suppliers to follow ethical standards is to maintain a better quality control over the suppliers.
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Appendix 1. The recall timeline of Toyota vehicle

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